Save Rail Competition In The West

May 31, 1996

In the '90s, railroads and their customers have encouraged mergers, believing that industry consolidation would produce faster and more reliable service, lower shipping rates and a healthier rail system.

But a planned $3.9 billion acquisition of Southern Pacific Rail Corp. by Union Pacific Corp., which would create the nation's largest railroad, has railroad battling railroad and shipper fighting shipper.

While the merger would create a strong competitor for the Burlington Northern Santa Fe, the other railroad in the West, it would make the new company dominant in some markets. Along parallel routes that would result from Chicago and St. Louis to the Texas Gulf Coast, for example, the new railroad would control 90 percent of the traffic. Such dominance could lead to higher rates for Illinois farmers and businesses that ship to gulf ports and Mexico.

Federal regulators shouldn't approve this deal without fixing the monopolies that it creates. The most sensible way to do that is to order the Union Pacific to sell the parallel Southern Pacific lines to another railroad. Such a divestiture would restore competition, yet preserve the beneficial aspects of the merger that occur, for example, from Texas to California.

Other railroads would be interested buyers. Last fall, Conrail, a major Eastern railroad, offered $1.5 billion to buy 3,000 miles of Southern Pacific routes, but Union Pacific would have none of it, accusing Conrail of trying to "cherry-pick" the merger.

Union Pacific and Southern Pacific recognize the merger's anti-competitive faults and have tried to correct them. They agreed to give Burlington Northern Santa Fe trackage rights to the lines in dispute. The agreement with its Western competitor, however, still leaves ownership and control in the hands of the merged giant, leading the Justice Department to conclude that the pact was "highly unlikely to restore existing levels of competition."

But the Justice Department doesn't have the final say on the merger. The federal Surface Transportation Board, successor to the former Interstate Commerce Commission and part of the Department of Transportation, is expected to make that decision in early July.

For its part, Union Pacific doesn't want to sell any lines. It says it plans to invest millions in them and a forced sale would only result in inferior service.

Many of the nation's leading shippers recently listened to the railroad's argument and still voted to oppose the merger. They want real competition preserved between railroads that own their tracks, not between companies that agree to carve up a market.

The only way to preserve effective competition is to sell the routes to the highest bidder and let another railroad offer competing rates and service.